Typical Recruitment Fees

In my last post (Recuitment's Iceburg), I was justifying the fees a recruitment agency makes. I guess then it makes sense the to outline what sort of fees agencies tend to charge.

Jobs can broadly be cut into two types - permanent and contract. The fee stucture is quite different for the two.

Let's start with permanent. Permanent fees are typically a single, one off fee based on a percentage of the successful candidate's annual salary package. The actual percentage can vary significantly on a range of factors - the seniority of the role (more senior roles command a higher percentage), the number of other agencies that are working the same role in competition, how difficult the positions are to fill and the volume of roles that a client gives an agency. A typical "rack rate" fee for contingent permanent recruitment is around the 20% mark. So for someone who is placed at a $60000 package, that means the agency fee would be $12000.

Contract fees are calculated somewhat differently. Rather than paying a one off fee to the agency, the agency puts their margin over and above the rate that the contractor is recieving, and therefore the agency thus derives a stream of commision while the contractor works for that company. Factors such as the amount of competition, the volume of roles, etc again influence the size of that margin, though the duration of the contract also comes into play - obviously an agency will derive a lot more commision from a 12 month contract than a 1 week contract, and that is typically factored into the margin.

Again, a standard rack rate for for contingent contract recruitment runs around the 20% mark. The calculations are a little more complex though, as payroll tax also needs to be factored into the rate as well. Here's how the calculations play out for someone on $60/hr:
Rate to contractor = $60/hr
Payroll Tax (5.45% in NSW) = $3.27/hr
Agency Margin (20%) = $15.82/hr
Total Charge rate = $79.09/hr

So over the course of a 3 month contract, an agency would make approximately $7500 from that placement.

You sometimes see claims of recruitment agencies making five or even ten times what the contractor getting. I think one of four things is happening in those situations:

(1) they are confusing consultancies and recruitment agencies. Consultancies charge their people out at those sort of multiples as they are responsible for deliverables, whereas recruitment agencies are not.
(2) they are citing an example from the early 1990s when recruitment was in its infancy, and there was an element of the wild west about the industry. These days competition is ferocious, and companies want transparency. No-one is going to be paying way over the odds.
(3) It's a very short term deal, so the recruiter can justify charging a higher margin to make decent money on the deal
(4) they are just making it up.

No doubt there will though be people who are reading this who will think these fees are ridiculously high. Sometime soon I'll write a separate article justifying agency fees, but I will leave you with two key points.

• The numbers quoted here are rack rates. Larger organisations will use their buying power to negotiate rates that are 30 or even 40% cheaper
• All the fees here hinge on successfully placing the person. If you don't make the placement, you don't make a cent